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Post-Brexit Probabilities: Why EIS could signal the most important companies to invest in

Post-Brexit Probabilities: Why EIS could signal the most important companies to invest in

By Oxford Capital | Oct 30th 2018

Whatever deal we do or don’t get, Brexit is going to bring major changes to the British business landscape. But for some small and growing businesses, it could be just the backdrop against which they thrive.

Small start-up companies are the “lifeblood of the UK economy”. In 2012, Vince Cable, then Secretary of State for Business, said, “It’s small businesses that will help drive growth and it’s important they are given the right conditions to thrive.” He probably didn’t foresee the UK’s withdrawal from the EU as the optimum conditions for them to do so, but their position as drivers of growth now seems more important than ever.

Last year, Chancellor Phillip Hammond adjusted the rules of the Enterprise Investment Scheme (EIS). The intention was to ensure its generous tax incentives were being used to drive investment into small, young businesses in need of capital, rather than simply as a capital preservation tax shelter.

The result is that EIS portfolios are now being invested in industries and companies that are of significant long-term importance to the future growth of the UK economy. Experienced EIS investment managers can form powerful partnerships with the leaders of carefully selected companies with the strength of product and management to succeed. These companies are the drivers of future economic growth, as well as delivering attractive potential returns for their investors.

A decade of low interest rates has already seen increased use of alternative investments among institutions and advisers. This includes the option of direct equity exposure to SMEs. The rise in alternatives to almost half of family office assets has been credited as one of the reasons for the doubling of their yield in 2017 from the previous year (Campden Wealth’s September 2018 Global Family Office Report).

Meanwhile, according to Natixis Investment Managers Professional Fund Buyers Survey 2018, seven in ten professional fund buyers say that alternatives such as private equity have become essential portfolio diversifiers (Citywire, October 2018). And Prequin’s latest investor outlook has found that most investors are planning to allocate more to alternatives in the short and long term (Citywire, October 2018).

By their very nature, SMEs are potential disruptors, unsettling the traditional and the incumbent. Unlike large corporates, new, small, entrepreneurial businesses have to be agile. At the moment, there is no telling what the UK’s large and established companies might look like after the UK has exited the EU. We just don’t know how their established models and dependable income streams will be affected by the new economic landscape.

Meanwhile, SMEs typically have an initial focus on niche areas, where their expertise provides some protection from large competitors. But, with the right funding, and the right commercial support, some can transform themselves as they aim to grow from niche to larger markets.

No wonder the venture capital firms experienced in identifying and backing those with the strongest potential for growth are at the forefront of what the British Business Bank has called “rising to the challenge of supporting companies with the potential to become global leaders” (Small Business Equity Tracker 2018, British Business Bank.

But it’s worth remembering that there are literally thousands of small companies hoping to develop. It’s vital that those companies with the best chance of success get the funding they need – for the sake of both investors and the UK economy.

All of this supports Oxford Capital’s ventures strategy of identifying young, technology-focused companies with the potential for strong growth. They display the potential of building on their best of British qualities to become world-beating businesses. And they benefit from our business expertise and ongoing backing as milestones of success are met and surpassed.

For more information about Oxford Capital’s ventures strategy, click here.

Awards

  • BEST EIS
    FUND MANAGER
    2013,2012,2010 AND 2006

  • VENTURE CAPITAL
    HOUSE OF THE YEAR
    WINNER 2013 AND 2005

  • INVESTOR OF
    THE YEAR
    WINNER IN 2012 AND 2013

  • MOST IMPACTFUL
    INVESTMENT
    WINNER 2017

  • BEST ANGEL
    SYNDICATE
    WINNER 2018